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Mispricing vs risk premia in R&D-intensive firms

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  • Branch, Ben
  • Chichirau, Cosette

Abstract

We utilize the NBER's patent database to reevaluate relationships between R&D on the one hand and firm fundamentals and stock returns on the other. Patent counts and patent citations are used to measure R&D quantity and quality respectively. Our R&D variables are all positively associated with growth and negatively associated with profitability. Using R&D spending and citations intensities to form stock portfolios, we are able to distinguish winners from losers. Investors who can effectively evaluate the quality of the R&D performed, may be able profitably to exploit the risk premium applied to the stock of R&D-intensive companies.

Suggested Citation

  • Branch, Ben & Chichirau, Cosette, 2010. "Mispricing vs risk premia in R&D-intensive firms," International Review of Financial Analysis, Elsevier, vol. 19(5), pages 358-367, December.
    • Handle: RePEc:eee:finana:v:19:y:2010:i:5:p:358-367
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    1. Shah, Syed Zulfiqar Ali & Liang, Shuang & Akbar, Saeed, 2013. "International Financial Reporting Standards and the value relevance of R&D expenditures: Pre and post IFRS analysis," International Review of Financial Analysis, Elsevier, vol. 30(C), pages 158-169.

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